No room at the inn

"We need new hotels," says Sam Johnson, manager of the Dublin Convention Bureau, the city's meetings and incentive tourism promotion agency. "Are we turning people away? No. Are we losing business on the back of availability? Yes we are."

The last quarter of 2016 saw guest levels at Dublin hotels hit record highs. “What we are seeing is a city running at record occupancy rates on the one hand, with a strategic plan from our national tourism authority on the other to grow the value of tourism to the economy,” says Johnson.

The Business Tourism Working Group, a mix of public- and private-sector organisations run by Tourism Ireland, has three strategic priorities, one of which is to increase hotel capacity not just in Dublin, but right across the country. "Pinch points in relation to availability are emerging in a number of places," says Johnson.

The working group has also identified a need for gala dinner venues of scale. “In Dublin, once you go over 500 guests you are really only looking at either the RDS or the two stadia, which don’t always cut it with organisers,” he says.

A third priority addressed by the group is the need for regionalisation. “It’s about growing business tourism outside of Dublin, and looking at what lies beneath that in terms of key issues such as access,” he adds.

Putting in place the right infrastructure is key to sustain future growth in a valuable sector. New research estimates average values for conference delegate visitors to Dublin at €1,643, up from €1,500 last year.

The total annual value of promotable business tourism, which includes planned meetings and events, is €340 million. “If you add in visitors coming from overseas for business meetings, you can multiply that by more than two, and hotel capacity is important for that type of business travel too,” Johnson notes.

The problem has its roots in the recession. As recently as 2009, economists were calling for 15,000 hotel bedrooms to be closed and used for other purposes due to over-capacity.

The result was a moratorium on investment. "Dublin has been five years without hotel development," says Tim Fenn, chief executive of the Irish Hotels Federation. Lack of investment in the sector has led to pent-up demand, fuelled by both population growth and swelling visitor numbers.

Capital is returning to the sector, however. Last year was a strong one in terms of hotel sales, with estate agency Sherry FitzGerald estimating that a record €720 million worth of hotel transactions, involving 51 hotels, took place. Deal activity gathered further pace in the final quarter. This refers, however, to hotels already in existence, when what is needed, in Dublin in particular, are new builds.

"It's all about justification for investment," says Fenn. "In Dublin, there is justification for new builds. In cities like Cork and Galway, there is justification for extensions to existing hotels and, just about, justification for new builds. In other areas, it's on a case-by-case basis. But nobody is going to build unless that investment is justifiable. A few years ago we had excess capacity. We've had a recovery at a rate that nobody expected and we now have the highest occupancy rates in Europe but we're still only 11th in terms of expensiveness, so Irish hotels are still offering good value for money," he adds.

Investor interest

As the transaction flow last year attests to, investor interest has returned. “Money is looking for a place to go to work,” says Fenn. “But the challenge facing developers is that it is very difficult to get planning, and very difficult to compete with office blocks. Investors are liable to get a quicker return from office-block development, which makes it hard for hotels to compete. At the end of the day, the market will decide.”

Lags in capacity are a fact of life in the sector. “Tourism has recovered really well and we have a great product, but the fact is, you can’t always have measured growth and measured supply, it tends to come in peaks and troughs.”

Right now, all the indicators for hotels are peaking. The average daily rate for a Dublin hotel stay jumped 15 per cent in 2016 and is set to rise by the same again over the next two years, even as 1,000 new bedrooms are developed in the capital, according to a new report from PwC.

The PwC European Cities Hotel Forecast for 2017 and 2018 found Dublin hotels had the highest occupancy in Europe in 2016, higher than London, Amsterdam and Berlin, and are predicted to stay on top in 2017 and 2018.

Dublin also had the second highest revenue per available room (RevPAR) growth in Europe in 2016 at 16 per cent, and is expected to have the second highest RevPAR growth in 2017.

Average daily rates in Dublin are expected to reach €138 in 2017 and €147 in 2018 – up from a 2007 peak of €109.

Last year marked double-digit growth in room revenues for the third year in a row, primarily driven by a further increase in room rates. While Brexit may create uncertainties, with limited new supply coming on stream in 2017, further growth is expected for Dublin hotels, according to Jennifer Gillen, senior manager PwC Ireland Hotel and Leisure.

Responding to the findings, Paul Carnell, sales director of the Convention Centre Dublin said: "The results this year show continued improvement and demonstrate how vital the hotel industry is to building sustainable business tourism in Dublin. The availability of a competitive and quality network of hotels against main European competitor cities is key to attracting international conferences to Dublin."

Fáilte Ireland estimates a total of 80 hotel projects are in the pipeline, of which 65 are likely to open by 2020. When extensions to existing hotels are included, about 5,500 new rooms could be added – that is as long as planned developments are followed through and not delayed as a result of market jitters arising from either Brexit or the Trump presidency.

All going well, forecast developments represent a significant turnaround in the sector, given that between 2010 and 2015, tourist arrivals to Dublin grew by 33 per cent, yet the stock of available accommodation actually fell by 6 per cent.

"The current shortage of hotel rooms in Dublin is likely to be short-lived," says Frank Corr, editor of Hospitality Enews.ie.

“While incoming tour operators and conference organisers are now experiencing some difficulty in sourcing hotel rooms, and paying high rates because of the shortage, plans are well advanced to open new hotels with a total of around 1,500 rooms over the next few years.”

And Dublin, which is feeling the most pressure, should get the most relief.  “Most of the new hotels are planned for the city centre,” he says. “These new rooms will begin to come on stream in 2018 and tourism interests are confident that supply will meet current demand projections around 2020.”